Foxconn in Wisconsin vs. Amazon in New York and Virginia: How do the subsidies stack up?

The first structure on the Foxconn construction site, a 120,000-square-foot "multi-purpose building," is up, with the building expected to be substantially completed late this year. Construction is well underway at the site of the Foxconn Technology Group $10 billion manufacturing and research complex in Mount Pleasant on Monday, October 22, 2018. The eventual 2,800 acre facility will produce high-definition display panels. - Photo by Jim Nelson and Mike De Sisti / Milwaukee Journal Sentinel(Photo: Jim Nelson and Mike De Sisti, Milwaukee Journal Sentinel)

The state's deal with Foxconn Technology Group is done and the contracts signed, but the recently unveiled agreements between Amazon and New York and Virginia have put Wisconsin’s subsidies for the Taiwan-based electronics manufacturer in the spotlight again.

Comparing the deals is muddy work, but even by the most generous reckoning, it appears Wisconsin is paying more per job than will go to Amazon for its much-watched “second headquarters” developments in New York and Virginia.

Whether Wisconsin’s huge incentive package proves to be worthwhile — and Amazon comparisons aside, many question the wisdom of the very practice of public subsidies for corporations — won’t be known for years.

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Jason Stein talks about costs of the Foxconn deal, how the state was able to put it together and what the state is getting for its money.
Bill Schulz / Milwaukee Journal Sentinel

If Foxconn, as it has said it will, creates 13,000 jobs and invests $10 billion in the manufacturing and research complex it has begun building in Mount Pleasant, the company stands to receive $2.85 billion in state tax credits.

The credits are “refundable,” meaning Foxconn will receive payments even if it doesn’t owe taxes. Wisconsin waives nearly all corporate and income taxes on manufacturing profits, so the credits likely will take the form of cash payments to the company.

That amounts to $219,000 per job. New York, meanwhile, has promised Amazon just under $3 billion for 25,000 jobs, or about $120,000 per job.

Virginia’s offer to Amazon is more complex, but its subsidies per job also appear to be lower than Foxconn’s.

And some observers say the gap between Wisconsin and the Amazon states is much larger than the basic numbers suggest.

But Foxconn advocates here say significant differences with the Amazon projects make comparisons between the incentive packages difficult.

“When you do the math straight up, Wisconsin paid more per job,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce. But, he added, that’s partly because of “the multiplier and the supply chain that flow out of manufacturing versus out of Amazon.”

Analysts use multipliers to project the additional jobs generated as the salaries and other money from a new business spread through the economy.

As a manufacturing operation, Foxconn has a higher jobs multiplier than Amazon, a services firm, Sheehy said.

He pointed to a 2017 study of Foxconn’s economic impact projecting that every 100 jobs at Foxconn will create another 170 jobs at other companies in Wisconsin. A study of the impact of the Amazon development in Virginia, meanwhile, projects that every 100 Amazon jobs will create another 88 to 99 jobs in that state.

The Virginia study was commissioned by the state’s economic development agency and was carried out by a research institute at George Mason University.

The Foxconn study was commissioned by Foxconn and was done by its consultant, professional services firm Ernst & Young.

In a subsequent review of Ernst & Young’s numbers, accounting and advisory firm Baker Tilly concluded that Foxconn would create fewer spinoff jobs — between 93 and 140 for every 100 jobs at Foxconn itself. Baker Tilly’s review was commissioned by the Wisconsin Economic Development Corp.

Also worth noting: Both studies of Foxconn’s impact assumed the company would build a so-called Generation 10.5 display panel factory, the largest and most costly in the industry. Foxconn has retreated from those plans, saying that in response to market conditions it now will start with construction of a smaller, “Generation 6” plant. However, it has consistently maintained that it will invest $10 billion in its Racine County campus and create 13,000 Wisconsin jobs.

While Foxconn is expected to spawn proportionally more outside jobs than Amazon, employment at Foxconn will pay far less.

Wisconsin’s contract with Foxconn calls for the company’s jobs here to average just under $54,000 a year. The proposals in New York and Virginia call for an average of $150,000 a year.

Prevailing salaries and the cost of living are higher in New York City and northern Virginia. Still, the average salary at Amazon would be nearly double the $75,745 average of metropolitan New York, and more than double the $68,363 of metropolitan Washington, D.C.

The Foxconn average would be about 4 percent higher than the metropolitan Milwaukee average and 15 percent higher than the metropolitan Racine average.

The figures on average annual salaries come from a U.S. Bureau of Labor Statistics database that covers almost all employers.

Virginia also calls on Amazon to raise its average annual salary by 1.5 percent a year, taking it to about $164,000 in 2025, for example, and nearly $177,000 in 2030.

In an email, Mark Maley, spokesman for the Wisconsin Economic Development Corp., noted that in addition to its manufacturing campus in Mount Pleasant, Foxconn has opened a North American headquarters in Milwaukee; announced planned innovation centers in Green Bay, Eau Claire and Racine; pledged $100 million to the University of Wisconsin-Madison for a science and research institute; and launched other initiatives.

“Comparing this transformational opportunity to the new Amazon headquarters in New York and Virginia is comparing apples to oranges,” Maley said. “While Amazon’s HQ2 investment would be welcome in any state, Foxconn’s presence in Wisconsin will reshape our economy, education system and workforce as it brings the next generation of advanced manufacturing to Wisconsin and North America.”

But it also can be argued that Amazon is a surer bet. Foxconn plans to bring to Wisconsin a type of manufacturing that is fully developed in Asia but essentially doesn’t exist anywhere in the United States.

Amazon is more of a known entity. The Seattle-based online retailing giant dominates its niche, employs more than 330,000 people in the U.S. and operates enough warehouses, data centers, offices and stores across North America to cover 3,500 acres.

Sheehy said Wisconsin will see a larger benefit in construction jobs over the four years it takes to build Foxconn’s complex. Baker Tilly estimated that direct, indirect and induced construction employment could run as high as nearly 25,000 for the period.

That’s temporary, Sheehy said, “but it’s four years of a lot of jobs.”

The $10 billion capital investment by Foxconn, meanwhile, would be twice the investment by Amazon in New York and Virginia combined, Maley said.

But Timothy Bartik, senior economist at the Upjohn Institute for Employment Research and someone who has looked extensively at the Foxconn development, said Wisconsin’s incentives appear to be much greater than those for Amazon.

Calculating the Wisconsin subsidies at a little less than $4 billion — a figure that includes $764 million from local government largely for infrastructure spending — Bartik estimated that the Foxconn package is 12 times greater than the average U.S. incentives for economic development projects.

He estimated New York’s proposed incentives at twice the national average, and Virginia’s at about one-third the average.

Sheehy argues against counting the $764 million in local spending because Foxconn has guaranteed in its contract that its Mount Pleasant campus will generate enough in new property taxes to repay the money.

Sheehy also points to some $2 billion in planned education and infrastructure spending in northern Virginia that is listed in the state and local financial commitments related to Amazon — spending Bartik doesn’t count in toting up Virginia’s subsidies.

In an email, Bartik said the infrastructure improvements in Mount Pleasant appear to be very specific to Foxconn, while those planned in Virginia — including nearly $1.1 billion to enhance tech education — are “general public goods that are generally useful to residents and businesses of northern Virginia.”

Sheehy, for his part, said at least some of the planned Virginia spending must be driven by Amazon.

Such varying perspectives underscore the difficulty of analyzing incentive packages to assess, in Sheehy's words, "what is for the benefit of the company and what has broader benefit.”

Even excluding the local spending for Foxconn, the incentives the company stands to receive still would total 10 times the U.S. average, Bartik said.

“It’s hard for me to think of a deal of this size that’s quite so generous,” he said in an interview. “It really is an outlier.”

But WEDC Secretary Mark Hogan said in a statement that the contract with Foxconn “was right for Wisconsin because it provided the company with the flexibility and incentives it needs to be successful in our state, while also giving taxpayers a high level of certainty that their investment will be protected.”

Sheehy also noted the inclusion in the contract of such protections as pay-for-performance and clawback provisions, and said he believes the deal stands up alongside those being made with Amazon.

“Compared to those two packages, Wisconsin got a fair shake,” he said. “There’s a lot that has to play out on both.”